The Organization for the Promotion of Brussels Sprouts has convinced the government of Ironia to institute a price floor on the sale of Brussels sprouts, at $8 per bushel. Demand is given by:
P = 9 – Q
and supply by:
P = 2Q,
where Q is measured in thousands of bushels.
Instructions: Round your answers to the nearest whole number.
a. At market equilibrium, the price is $________ per bushel, and the equilibrium quantity is_______ thousand bushels.
b. With the price floor, the price is $_________ per bushel, and the quantity sold is________ thousand bushels.
c. The excess supply of Brussels sprouts produced with the price floor is______ thousand bushels.
a)
Equilibrium is set at the point where, market demand is equal to the market supply.
Calculate the price and quantity demanded as follows:
\(9-Q=2 Q\)
\(9=2 Q+Q\)
\(9=3 Q\)
\(Q=3\) units
Thus, the equilibrium quantity demanded is 3units.
\(P=9-Q\)
\(=9-3\). \(=\$ 6\)
Thus, the equilibrium price is \(\$ 6\).
b)
Price floor is set above the market equilibrium. If it is set below, then shortage occurs.
With the price floor, the price is at \(\$ 8\).
Calculate the price and quantity sold with the price floor as follows:
\(P=9-Q\)
\(8=9-Q\)
\(Q=\) lunit
Thus, the quantity demanded at price ceiling is 1 lunit.
\(8=2 Q\)
\(Q=\frac{8}{2}=4\) units
Thus, the quantity supplied is 4 units
c)
calculate the excess supply as follows:
Excess supply = quantity supplied - quantity demanded \(=4-1\)
\(=3\) units
Thus, the excess supply is 3 units.
The Organization for the Promotion of Brussels Sprouts has convinced the government of Ironia to institute...